Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows: Sandy Beach Rocky River Direct materials cost per unit $ 19.60 $ 27.00 Direct labor cost per unit 15.00 18.10 Sales price per unit 82.80 105.00 Expected production per month 1,240 units 900 units Keller has monthly overhead of $12,053, which is divided into the following cost pools: Setup costs $ 2,900 Quality control 6,195 Maintenance 2,958 Total $ 12,053 The company has also compiled the following information about the chosen cost drivers: Sandy Beach Rocky River Total Number of setups 11 39 50 Number of inspections 100 425 525 Number of machine hours 1,450 1,450 2,900 Required: 1. Suppose Keller uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.) Overhead Assigned Sandy Beach Model Rocky River Model Total Overhead Cost $0 2. Calculate the production cost per unit for each of Keller’s products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Sandy Beach Rocky River Unit Cost 3. Calculate Keller’s gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.) Sandy Beach Rocky River Gross Margin

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Keller Company makes two models of battery-operated boats, the Sandy Beach and the Rocky River. Basic production information follows:

	Sandy Beach	Rocky River
Direct materials cost per unit	$	19.60		$	27.00
Direct labor cost per unit		15.00			18.10
Sales price per unit		82.80			105.00
Expected production per month		1,240	units		900	units

Keller has monthly overhead of $12,053, which is divided into the following cost pools:


Setup costs	$	2,900
Quality control		6,195
Maintenance		2,958
Total	$	12,053

The company has also compiled the following information about the chosen cost drivers:

	Sandy Beach	Rocky River	Total
Number of setups	11	39	50
Number of inspections	100	425	525
Number of machine hours	1,450	1,450	2,900

Required:
1. Suppose Keller uses a traditional costing system with machine hours as the cost driver. Determine the amount of overhead assigned to each product line. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)

	Overhead Assigned
Sandy Beach Model
Rocky River Model
Total Overhead Cost	$0

2. Calculate the production cost per unit for each of Keller’s products under a traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

	Sandy Beach	Rocky River
Unit Cost

3. Calculate Keller’s gross margin per unit for each product under the traditional costing system. (Round your intermediate calculations and final answers to 2 decimal places.)

	Sandy Beach	Rocky River
Gross Margin

4. Select the appropriate cost driver for each cost pool and calculate the activity rates if Keller wanted to implement an ABC system.(Round your answers to 2 decimal places.)


Setup Costs
Quality Control
Maintenance

set ups, inspections, machine hours
5. Assuming an ABC system, assign overhead costs to each product based on activity demands.(Round your intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

	Overhead Assigned To Sandy Beach	Overhead Assigned To Rocky River
Setup Cost
Quality Control
Maintenance
Total Overhead Cost	$0	$0

6. Calculate the production cost per unit for each of Keller’s products with an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

	Sandy Beach	Rocky River
Unit Cost

7. Calculate Keller’s gross margin per unit for each product under an ABC system. (Round your intermediate calculations and final answers to 2 decimal places.)

	Sandy Beach	Rocky River
Gross Margin

8. Compare the gross margin per unit of each product under the traditional system and ABC. (Round your answers to 2 decimal places.)

	Sandy Beach	Rocky River
Gross Margin (Traditional)
Gross Margin (ABC)

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